WTI Oil Now at $111 -- Why?

Update

April 11, 2011: This is a very nice article on answering the question -- why is WTI oil at $111? The writer addresses the major explanations for the high price; he suggests the Fed policy of QE2 was the prime culprit, and when QE2 is withdrawn, oil is fall dramatically, as will the general market. I personally think the Saudis like what they see: a rising stock market; a global economy that is recovering, and a price that appears sustainable. A reminder: the writer, Dian Chu, has been skeptical of the recent run-up in oil prices and predicted that oil would be back to $90 by the end of April.

Original Post

It seems there is about a 50/50 split of talking heads who say oil is going to fall back precipitously and others who seem to be talking oil up to $120.

I don't know why oil keeps rising.

Here is the news that I recall in last 24 hour-news cycle. Maybe someone can tell me their thoughts why oil keeps rising.

1. Libya: US general officer says US may consider putting troops on the ground in Libya.
2. Dollar continues to weaken.
3. More evidence of inflation around the corner.
4. Japanese energy situation is not going to improve any time soon.
5. Saudi Arabia sends emissaries to Russia and China, not US, to shore up support.
6. Increasing talk that Saudi's margin of spare capacity not all that great -- and it's the wrong kind of oil.
7. No suggestion that US is serious about own domestic oil program.
8. Evidence that global economic recovery is real; if so, huge demand for oil.

My personal "favorites are: 3, 2, 8, 6, 1, 5 -- in that order.

The following was not in the latest 24-hour news cycle so I could not include it, but I wonder how much of this is due to the fact that the Saudis like what they are seeing.

SemCrude vs Murphy Oil Prices

Earlier today I posted the historical prices for Williston Sweet using SemCrude's prices/web site.

Subsequently, I was told that Murphy Oil also had a site for oil prices. A quick check revealed that the prices at Murphy and SemCrude were significantly different; Murphy Oil was generally significantly higher the few dates I checked.

It seemed Murphy was about $10 higher when oil was in $50 to $70 range and $20 higher when price range was closer to $90 to $100. That's a huge spread and I can't explain it. Hopefully I'm not misreading something.

Check it out for yourself; see if I'm missing something.

Murphy oil website.

SemCrude oil website.

Note: the Williston Herald said the same thing -- Empire Oil reporting $102/bbl of oil.

Surge Energy Makes Significant North Dakota Acquisition -- Spearfish, North Dakota, USA

Wow, this got exciting fast.

Link here.

Surge Energy Inc. is pleased to announce the acquisition of adjoining Spearfish light oil assets in Bottineau County, North Dakota through two key transactions (the "Acquisitions").  The Acquisitions more than double the Company's net unbooked Spearfish light oil drilling inventory by adding 205 gross (120 net) horizontal drilling locations.  The Acquisitions also include a high working interest, contiguous undeveloped land base of more than 100,000 acres that is exploratory in nature and prospective for light oil in the Basal Spearfish and the Madison Formations. 

The press release is one of the more detailed press releases I've seen regarding an oil patch transaction.

Data points later, perhaps, but the link will take you there.

This combined with information on today's daily activity report suggests the Spearfish formation in Bottineau is about to get real busy.

I've looked several places to see from whom Surge may have purchased the Spearfish and Madison wells in northern North Dakota, but unable to find any specific answers. The scuttlebutt is Surge acquired the mineral acres from EOG. It had to be a pretty big operator: one of the two acquisitions involved 108,000 acres. 

Spearfish Formation Activity -- Madison Formation Activity -- Petro Harvester Acquires Sagebrush Madison Wells in Bottineau -- North Dakota, USA

This was part of the Daily Activity Report, April 7, 2011, earlier but deserves its own stand-alone post.

Ward-Williston had a full page of well name changes on today's daily activity report (April 7, 2011). The previous names were all surface-owner specific, and similar, but now they have all been changed to "MRPSU XX-XX." The first two digits refer to the section and the second is specific for the well. I assume "MRPSU" stands for Mouse River Park Spearfish Unit.

In addition, there was a change in operator from Sagebrush Resources to Petro Harvester Operating Company, LLC, affecting about four pages of wells. I didn't count them, but estimating about 40/page, it appears there was about 140 wells that changed hands. Many of these new Petro Harvester wells were up in Bottineau County. Most of the well names did not have an H-designation, suggesting they are vertical wells. A few did have the H-designation. It appears all the wells target the Madison formation. Petro Harvester website here.

Nine (9) New Permits -- Spearfish Formation -- Bakken, North Dakota, USA

Operators: BEXP (4), Ballantyne (2), Denbury, Slawson, and OXY USA

Fields: Banks, Camp, Southwest Landa, Tobacco Garden, Van Hook, and Dimond

BEXP is putting two 2-wells pads in; one in Banks, one in Camp.

Ballantyne has two wells going into Bottineau County, Southwest Landa oil field.

And any time you see Dimond oil field, it is most likely going to be an OXY USA well.

There was no reporting of any production of any wells on today's daily activity report.

However, the report, normally one to two pages, was six pages long today.

Ward-Williston had a full page of well name changes. The previous names were all surface-owner specific, and similar, but now they have all been changed to "MRPSU XX-XX." The first two digits refer to the section and the second is specific for the well. I assume "MRPSU" stands for Mouse River Park Sherwood Unit -- see first comment below (thank you to the individual who pointed that out for me). I don't find Mouse River Park Sherwood Unit on the GIS map server, but it is listed on the Confidential List.

In addition, there was a change in operator from Sagebrush Resources to Petro Harvester Operating Company, LLC, affecting about four pages of wells. Petro Harvester website here.

Invade: To Go Into With Hostile Intent -- Not a Bakken Story

The first definition of "invade" is "to go into with hostile intent."

CBS News: US general officer says US may consider putting ground forces into Libya.


The president's full speech on the American mission in Libya, March 28, 2011

I said that America's role would be limited; that we would not put ground troops into Libya; that we would focus our unique capabilities on the front end of the operation; and that we would transfer responsibility to our allies and partners. Tonight, we are fulfilling that pledge. -- President Obama, March 28, 2011

Monthly Prices of North Dakota Sweet Since June, 2007 -- North Dakota, USA

There has been a lot of anxiety in the mainstream media regarding the price of oil. So, another look:

Below the introduction are prices for North Dakota Sweet.

These are the last prices shown for the month indicated for North Dakota Sweet provided by SemCrude. [Update: someone pointed out that there was a significant price discrepancy between SemCrude's and Murphy's prices for North Dakota Sweet. I have since added a quote from Murphy for the designated month.]

Note: back in early 2009, North Dakota Sweet dropped to $20/barrel. EOG has said "they are robust" when Bakken oil is $40/bbl. Back in the 2008 timeframe, North Dakota Sweet was at/over $85 for seven (7) months, spiking to $120 for two (2) months.

In comparison, in the current run-up in oil prices, North Dakota Sweet has been above $85 for only one (1) month. (Again, in a general sense, using only the last figure for the month indicated as provided by SemCrude.)

There were at least fourteen (14) months of gradual and steady increase in the price of oil before hitting the $120 peak. Then, the recession. Following that spike, and sudden reversal, the past 18 months or so have been fairly unremarkable. Even the run-up to $89 is not particularly remarkable when compared to the July, 2008, spike.

Month: SemCrude Price -- Murphy Oil Price (each month there are multiple figures; I simply picked the last figure presented by SemCrude and the first figure that popped up for Murphy Oil.

April, 2011: 89 -- 100
March, 2011: 84 -- 86
February, 2011: 66 -- 76
January, 2011: 67 -- 77

December, 2010: 67 -- 73
November, 2010: 66 -- 68
October, 2010: 60 -- 63
September, 2010: 53 -- 61
August, 2010: 60 -- 65
July, 2010: 53 -- 59
June, 2010: 51 -- 58
May, 2010: 54 -- 72
April, 2010: 65 -- 73
March, 2010: 61 -- 67
February, 2010: 51 -- 64
January, 2010: 62 -- 67

December, 2009: 54 -- 66
November, 2009: 57 -- 63
October, 2009: 49 -- 57
September, 2009: 47 -- 54
August, 2009: 45 -- 56
July, 2009: 42 -- 55
June, 2009: 48
May, 2009: 36
April, 2009: 29
March, 2009: 25
February, 2009: 19
January, 2009: 22


December, 2008: 20
November, 2008: 41
October, 2008: 70
September, 2008: 86
August, 2008: 100
July, 2008: 121
June, 2008: 118
May, 2008: 103
April, 2008: 89
March, 2008: 85
February, 2008: 68
January, 2008: 75


December, 2007: 68
November, 2007: 76
October, 2007: 61
September, 2007: 57
August, 2007: 52
July, 2007: 52
June, 2007: 47

Medicine Pole Hills Oil Field -- North Dakota, USA

Every so often CLR gets another permit for the Medicine Pole Hills oil field, in the far southwest corner of the state.

Right now, in that field, and in the entire southwest part of the state, there is a lone rig on site:

• 19717, ROS, CLR, Wallman 42-8H

In addition, CLR has two sites on confidential status in the immediate area:

• 19872, C, CLR, MPHU 43-9H
• 19716, C, CLR, Della 31-17SH

So, what's the history of this field. Here are some wells in the immediate area (file number, operator, date spudded, formation, and total oil to date:

• 5530, CLR, 2006, West Red River, 386K
• 14971, CLR, 2000, West Red River, 320K
• 5456, CLR, 1974, West Red River, 610K
• 13867, CLR, 1996/2010, West Red River, 105K
• 7675, CLR, 1980, West Red River, 167K
• 16064, CLR, 2010, West Red River, 11K

Again, anything over 100K is nice to see.

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Now let's look a little bit deeper:

13867: this CLR well has two spud dates (1996 and 2010. In 2010, CLR re-entered the well and put in a horizontal into the Red River "B" formation. The IP was 123, and the production was running 2,000 bbls/month; there is no mention of fracking). Here are the production numbers for this well:

• For the first few months after spudding, 1,000 bbls/month
• Then for several months, 800 bbls/month
• Before leveling off at 600 bbls/months for years (with one notable exception: 1,800 bbls 2/05)
• Then August, 2010: no production; that's when CLR was re-entering the well

Here are the production numbers since August 2010, after the new lateral was drilled:

• September, 2010: 2,225
• October, 2010: 3,712
  November, 2010: 3,281
• December, 2010: 2,524
• January, 2011: 3,281
• February, 2011: 3,712

Comment: for me, this is huge. First thing I noticed: CLR moved this well from 800 bbls/month to 3,000 bbls/month in 2010. Second thing I noticed: not the decline in production that we see in the Bakken.

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5456 is a vertical well into the Red River, and spaced at 320 acres. It is still producing at about 800 bbls/month and seems fairly stable.

Is It Just Me?

With oil now heading calmly, and slowly above $110 (up $1.45 in the last couple of hours), is it just me or does it seem strange to others that the president seems to be absent without leave on this subject? Three bullets:

• President's energy security speech called for alternate energy with goal to cut imported oil by one-third over the next decade; a decade from now!
• Saudi Arabia sent emissaries to Russia and China to short up support following unrest in the Mideast, not to its longest ally, the US
• President devotes more than half-a-day to a photo op town meeting/campaign stop in a wind turbine factory when oil moves to $109

Again, folks, oil is now solidly over $110 and yet that inconvenient fact seems to go pretty much unnoticed on MSNBC and CNBC.

By the way, the only takeaway for me from that town meeting:

By the way, President Obama thinks it is something to laugh about if folks are still driving vehicles that get 8 mpg.

“If you’re complaining about the price of gas and you’re only getting 8 miles a gallon, you know,” Obama said laughingly. “You might want to think about a trade-in.” Let them eat cake.

Construction workers driving their personal pick-up trucks to work or farmers driving their pick-up trucks to their fields probably deserve a bit more respect than that. Something tells me the individual asking the question was not driving a Hummer. [Note: "anonymous" pointed out that my earlier example of Deere farm equipment and Caterpillar heavy construction equipment was a poor example; and suggested that folks driving Hummers deserve to be laughed at. Weren't Hummers made by Government Motors?]

I think that the federal government's response to Virginia's efforts to re-open drilling off-shore will show us where the administration is headed.

For Newbies: Why The Bakken Is So Exciting -- Bakken, North Dakota, USA

The current boom in western North Dakota is focusing on the Bakken Pool (three Bakken formations and two Three Forks formations).

But let's take a look at something else for a moment.

Go to the GIS map server at the NDIC website.

Zoom in on the Cedar Hills oil field in the southwestern part of the state. There are as many as eight (8) laterals running through these sections. Here are the file numbers, the date spudded, the formation, and the total oil produced to date:

• 13944, South Red River B, 1996, 308K
• 15875, South Red River B, 2005, 440K
• 15876, South Red River B, 2005, 436K
• 15297, South Red River B, 2002, 28K 
• 15848, South Red River B, 2005, 184K
• 15846, South Red River B, 2005, 343K
• 15847, South Red River B, 2005, 603K
• 14108, North Red River B, 1996, 417K
• 15354, North Red River B, 2003, 10K
• 16491, North Red River B, 2007, 204K
• 16144, North Red River B, 2006, 135K
• 16194, North Red River B, 2006, 206K
• 14109, North Red River B, 1996, 273K
• 15264, North Red River B, 2008, 25K
• 14014, North Red River B, 1997, 250K
• 16691, North Red River B, 2007, 188K
• 15318, North Red River B, 2008, 13K

Some comments:

• For newbies, any well with cumulative > 100,000 wells is a very good well
• These wells are not all that old
• On the other other hand, the older wells (1996) shows how long these wells produce
• Almost all these wells are still producing very nicely; some quite nicely
• The 17 wells picked up above, were picked completely randomly from the GIS map server (from the same immediate area, but the area was picked randomly from the Cedar Hills field; note that only three wells were not good wells; that's a pretty nice success rate; there are not many "dry" wells or "abandoned" wells in this area)
• CLR has been in this area from the beginning; to me, the Red River seems pretty good, but yet, CLR says they've never seen oil production like they are seeing in the Bakken
• #14108, spudded in 1996, is still producing at 3,000 bbls/month (water injected); that production level exceeds much of its past history of production
• If the Bakken was not as exciting as the Red River, the operators would not be spending $7 million on a Bakken well when they could be drilling the Red River formation
• One producing well holds that lease by production "forever" and the right to put in more wells in that same leased area
• Again, there are as many as 8 horizontals running through these sections in the Cedar Hills oil field; based on dockets coming to the NDIC last month and this month, we are going to see the same number of horizontals in the areas focusing on the Bakken

Two Nice Bakken Wells Reported: ERF (1,676) and EOG (1,476) -- Bakken, North Dakota, USA

Coming off the confidential list today, are two nice wells:

• 19157, 1,476, EOG, Bear Den 04-20H, Spotted Horn, Bakken, spudded 10/10; tested 3/11;
  18545, 1,676, ERF, Ethan Hall 6B-7-1H, Moccasin Creek, Bakken, spudded 10/10; tested 2/11; 22K first 18 days

In addition, Oil for America's Wieglenda 23-1 is reported to still be in DRL status. This is one of five wells Oil for America is currently drilling, targeting the Lodgepole. My understanding is that these were vertical wells and did not have a horizontal component.

This is where I archive Oil for America data. To see all "Oil for America" posts, click on the label at the bottom of the blog.

GE, Solar Power, and the Market

I am often accused of juxtaposing two facts that have no bearing on each other.

Here I go again (10:00 a.m. EST, April 7, 2011).

The market is up (barely). Oil is up (barely). Bakken-based oil companies are starting to turn green.

Ten minutes ago CNBC reported that GE has announced it will build the world's largest solar power plant in the United States, location yet to be disclosed.

One minute ago, CNBC's crawler listed the Dow laggards in early trading. Three companies were listed: one was GE.

With regard to the GE solar plant, this is the story.

• $600 million-facility to make solar panels
• The company is still deciding on the location for the new facility
• First Solar will take a hit 

From the Wall Street Journal, April 8, 2011:

"We're looking to make solar look like [GE's wind business] over the next five years," said Victor Abate, vice president of the company's renewable-energy division.

Broke (without heavy subsidies and/or govt mandates).

I couldn't resist.

Motley Fool, The President's Energy Program, and How The Bakken Fits In

MotleyFool.com has another superficial article with regard to energy, but its headline caught my eye:

Perspective on Obama's Energy Program

I was not aware that President Obama had an energy program. I know he made an energy security speech and that he wants utilities using coal to go bankrupt, and he is against off-shore drilling, but being against "stuff" is not a program. He does have a wind energy program, but I don't consider that an energy program.

Having said that, I was quite surprised to see two Bakken-based companies highlighted by MotleyFool alongside a behemoth like ExxonMobil in that article.

The two Bakken-based companies that were highlighted: Kodiak Oil and Gas and Continental Resources. There is a huge difference between KOG and CLR compared to XOM, and there's even a huge difference between KOG and CLR.

In addition, the article mentioned Denbury, a player getting bigger in the Bakken, and Linn Energy, a relatively new entrant into the North Dakota Bakken.

The President Feels Your Pain -- Not A Bakken Story

Reporting from the town meeting President Obama held at a wind turbine factory, the reporter posted the following:

Obama needled one questioner who asked about gas prices, now averaging close to $3.70 a gallon nationwide, and suggested that the gentleman consider getting rid of his gas-guzzling vehicle.

“If you’re complaining about the price of gas and you’re only getting 8 miles a gallon, you know,” Obama said laughingly. “You might want to think about a trade-in.”

The link is here.

It's been my experience that AP stories are revised after initial publication. Don't be surprised if this link is broken or if the quote is removed from the story.

It takes a bit of courage to confront the president. To ask a serious question, and to be laughed at in response, speaks volumes (at least to me). 

When oil is at $109 and when gasoline is over $4.00 in California and elsewhere, it's hard to believe we're holding town meetings in wind turbine plants. If you've been following the news, China, Japan, Germany, Norway, General Electric (GE), and others have been making tough choices and their decisions are a bit different than those of the current administration.

But this is reassuring: President Obama, in his energy security speech, said another $10 increase in the price of oil translates to only 25 cents increase in the gallon of gasoline. And his energy secretary says his worse nightmare is coal. On CNBC this a.m., it is being reported that the energy secretary now has "great concern" about the price of oil. Well, duh.

Bakken-LIke Plays in Canada

SeekingAlpha.com has another article that helps me understand the tight (unconventional, Bakken-like) plays in Canada.

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Again, my disclaimer: This is not an investment blog. I started the blog simply as a way to educate myself about the Bakken, and then decided to let it go public. The site has morphed  since the beginning but I still look at it as an educational site.

It is difficult to understand the Bakken without looking at the companies that are operating in the Bakken and that's the reason for the links to investment sites.

It was through the investment sites that I  finally understood the difference between the Alberta Basin Bakken and other plays in central Montana, for example.

However, having said that, understanding the Bakken, has made me more disciplined about investing.

Even If US Isn't Drilling Offshore, The Rest of the World Is. US Companies Benefit

Halliburton is awarded a huge contract to drill for Statoil in Norway's North Sea.